Bogotá — One of Colombia’s major concerns is its inability to strengthen and deepen its capital markets. The last time the Colombian Stock Exchange (BVC) saw the debut of a stock was more than 10 years ago.
It is precisely for this reason that experts on the subject met to find the answers to the reasons why investment is not coming to the capital markets and what is required to attract it.
César Ferrari, head of the country’s financial regulatory body, stated that “without the development of financial markets, economic development is not possible, because there is no way to promote savings and investment”.
He criticized, for example, the size of the credit market, which in the country is 51.8% of GDP, while in other countries in the region, such as Brazil, it is 71%; in Chile, 108%; or in large economies such as China, where it is 171% or the United States, where it represents 216%.
He also said that the biggest problem in Colombia is not foreign investment, but domestic investment and, in this sense, consumption costs are very high in the country, so there is very little left for savings and investment.
“Why is there not more domestic investment? Because there are no savings to finance it, and the projects are not profitable enough,” he said.
Ferrari pointed out that among the problems of the stock market is that only 35 shares are traded and that 61% of the market value is concentrated in only two issuers.
He added that, in order to attract more investment, it is necessary “to make projects profitable, change the price structure by reducing costs in relative terms to sales prices so that companies give more profits, but also by promoting the growth of the capital market and this has to do with education to new issuers and investors, with a regulatory review process to eliminate barriers and filling gaps; with more financing alternatives, among others”.
Michel Janna, president of AMV, said “the promotion of the capital market must be a public policy objective. There must be joint work spaces between authorities and market players”, he said.
“Low aggregate savings is the main obstacle to the development of the Colombian stock market. And there are downside risks: unfortunately, the current economic growth will not allow to increase it, the possible impacts of the pension reform on savings is a latent concern, and there are low incentives to voluntary savings,” Janna added.
For his part, Luis Fernando Mejía, executive director of Colombian think tank Fedesarrollo, said that “we have a high cost of capital, which is discourages investment and savings; we have corporate taxes that are not attractive, and there is uncertainty about the profitability of investment”.
How do foreign investors see Colombia?
One of the questions investors ask when interest rates are high is where they can invest to find the best opportunities while minimizing risks.
Ángela Hurtado, president of JP Morgan in Colombia, said that “it has been very interesting, and difficult, for long-term investors to make moderately rational decisions in this complex context, both locally and internationally. We started with a very positive expectation due to China’s growth, and secondly we probably had a conviction of the recession in the United States”.
“International investors have gone from having a positive outlook about what can happen in emerging markets, particularly Latin America, which during the last year and a half has had attractive interest rates and attractive exchange rates to increase their exposures, and Colombia has not been the exception,” she added.
“Last year, we finished below our peers due to the dollar and the sharp rise in interest rates, and that raised the country risk among other variables,” added the JP Morgan president.
For his part, Juan Pablo Córdoba, president of Holding Bursátil, said: “We must differentiate between short-term investors and long-term structural investors and local investors, and there I think they are very affected because all the messages are that there are no conditions for investment here, because when you go and talk to foreigners the first thing they ask is what do the locals say?”
Finally, Mauricio Santa María, president of economic think tank ANIF, spoke about three major topics: how the macroeconomy affects investors’ decisions; the investment outlook in a scenario of uncertainty; and the effects of the pension reform.
“With the highest revenues in history, in 2023 and 2024, we are nevertheless going to have a deficit of around 4.5 points of GDP,” he pointed out.
Regarding the challenges of the capital markets, he specified that “it is necessary to take into account factors such as the fact that in Colombia only 0.5% of companies are large, and we have a business informality of between 50-60%”, he said.
Regarding the pension reform, he assured that he has never agreed with the pillar system.
“Regardless of the cap that is placed [for the contributions to state pensions], that means deepening the average premium regime, which is unsustainable over time”.
And he added that, “with the threshold of three minimum salaries, the reform would take 91% of savings in the pension funds, with two salaries it would take 84% of savings, and if it were just one minimum salary it would account for 49%.”
